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Back in January, the U.S. Board of Governors of the Federal Reserve (the “Federal Reserve”) released its long-awaited discussion paper, “Money and Payments: The U.S. Dollar in the Age of Digital Transformation” (the “Report”), beginning a public dialogue about central bank digital currencies (“CBDCs”) and weighing the merits of a U.S. CBDC.

For the purposes of the Report, a CBDC is defined as a “digital liability of a central bank that is widely available to the general public” and further, a “digital form of paper money.” In this respect, a CBDC is like a stablecoin because a CBDC also seeks to maintain a stable value and become an alternate payment mechanism that can be used to facilitate trading and lending, lessen the friction surrounding cross-border payments, and help foster more financial inclusion. However, unlike a stablecoin backed by reference assets like a national currency, commodities, or another digital asset, a U.S. CBDC (i.e., a digital dollar) would be backed by the full faith and credit of the United States in the same way as a physical dollar and, as described in the Report, would be digital money that is “free from credit risk and liquidity risk.” Thus, as discussed in our recent post on stablecoins, a CBDC enjoys many of the same benefits as stablecoins and, as described in the Report, “could spur innovation by banks and other actors and would be a safer deposit substitute than many other products, including stablecoins and other types of nonbank money.”  Still, the Report suggests that CBDCs may bring their own risks to the safety and stability of the monetary system, particularly during times of financial stress, and otherwise affect the Fed’s ability to implement monetary policy. Plus, there is the added complexity of harnessing and updating the government’s infrastructure to launch such a digital dollar.  On the whole, the Report cautions that a CBDC “could fundamentally change the structure of the U.S. financial system.”

On March 9, 2022, the President issued an Executive Order (the “E.O.”) that articulates a high-level, wide-ranging national strategy for regulating and fostering innovation in the burgeoning digital assets space.  The strategy is intended to encourage innovation yet still provide adequate oversight to control systemic risks and the attendant investor, business, consumer and environmental concerns.

The E.O. is very broad in scope.  It focuses on the myriad of issues associated with “digital assets,” a term defined in a way to capture a wide variety of existing and emerging “crypto” implementations.  Specifically, the E.O. defines digital assets to include “all central bank digital currencies (CBDCs), regardless of the technology used, and to other representations of value, financial assets and instruments, or claims that are used to make payments or investments, or to transmit or exchange funds or the equivalent thereof, that are issued or represented in digital form through the use of distributed ledger technology.” Significantly, the E.O. does not make an attempt at defining the regulatory status of digital assets and notes a digital asset “may be, among other things, a security, a commodity, a derivative, or other financial product.”

While the E.O. itself doesn’t really set forth any new requirements, it puts into motion a process that may yield specific regulatory approaches to digital assets.  Of course, this process is happening in parallel with other initiatives by the Securities and Exchange Commission (“SEC”) and Congress itself and thus, there is a possibility that the E.O will result in approaches that are in ways inconsistent with other ongoing regulatory developments.  For example, in January 2022 the SEC released a proposal that would enhance investor protections and cybersecurity for alternative trading systems that trade Treasuries and other government securities.  The proposal prompted a dissenting statement from SEC Commissioner Hester Peirce (often referred to as “Crypto Mom” for her advocacy of the industry), who objected to the speed and breadth of the January 2022 proposal.  The E.O. sidesteps some of the controversial issues addressed in the SEC proposal, such as how “exchanges” should be defined, as well as the greater issue of how different digital assets should be classified (and therefore, which financial regulatory agencies have jurisdiction over various digital products and platforms). At the same time, there seems to be some amount of bipartisan interest in Congress to pass its own legislation regulating certain aspects of cryptocurrency and related technologies (e.g., in the stablecoin area), Whether or not that legislation would be consistent with the results of the E.O.-driven processes is also hard to tell.

In late May, the Global Shipping Business Network (GSBN), a consortium of ocean carriers and terminal operators, filed a petition with the Federal Maritime Commission (FMC) to obtain an antitrust exemption under the U.S. Shipping Act of 1984. The Act seeks to promote efficient ocean commerce and industry response to…

During congressional debates over the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a relatively novel idea was the focus of proposals from the Senate and House of Representatives: “digital dollars.” Several legislative proposals introduced the idea to address the delay between passage of the CARES Act and distribution of direct stimulus payments to taxpayers, one of the pillars of the act. While the concept did not find its way into the final bill, its inclusion in proposals from both the Senate and House indicate that the viability – and specific application – of a central bank digital currency may be emerging.

In the Senate, Ranking Senator Sherrod Brown (D-OH) introduced the Banking for All Act (BAA) on March 24, 2020. Senator Brown touted the BAA as an avenue for rapid payment of stimulus checks to individuals. Specifically, the BAA would allow all residents and citizens of the United States, and businesses domiciled in the United States, to set up a free digital dollar wallet, called a “FedAccount”, which would be maintained by member national, state and local banks, as well as U.S. Post Offices. A FedAccount would allow a holder “receive payments from the United States pursuant to a Federal law relating to the coronavirus disease 2019 (COVID-19),” as well perform more general tasks such as withdrawing and receiving money, and making payments.

On March 19, 2020, the U.S. Department of Homeland Security, Cybersecurity and Infrastructure Security Agency (CISA), issued Guidance on the essential critical infrastructure workforce needed to ensure national resilience during the COVID-19 response. CISA developed its initial list of critical infrastructure workers to help state and local officials determine which…

As we highlighted in our recent Practical Law Practice Note, Smart Contracts: Best Practices, various state lawmakers are paving the way for widespread use of blockchains and smart contracts in commerce. For example, on January 1, 2020, the Illinois Blockchain Technology Act (BTA) went into effect, resolving some legal uncertainties around the legal status of blockchains and smart contracts in Illinois.

“Smart Contracts,” as defined by the BTA, are contracts stored as electronic records which are verified by the use of a blockchain. Smart Contracts can be deployed in a variety of legal and non-legal contexts, ranging from car rentals to supply chain management. However, one question that has loomed over smart contracts is how courts will review their enforceability, given that smart contracts may not resemble typical, written agreements. Some legislatures, and now Illinois, have sought to address this issue head-on, rather than waiting for courts to decide.

The BTA provides four permitted uses for blockchain and smart contracts:

  1. A smart contract, record, or signature may not be denied legal effect or enforceability solely because a blockchain was used to create, store, or verify the smart contract, record, or signature.
  2. In a proceeding, evidence of a smart contract, record, or signature must not be excluded solely because a blockchain was used to create, store, or verify the smart contract, record, or signature.
  3. If a law requires a record to be in writing, submission of a blockchain which electronically contains the record satisfies the law.
  4. If a law requires a signature, submission of a blockchain which electronically contains the signature or verifies the intent of a person to provide the signature satisfies the law.

In effect, these permitted uses prevent a court from denying smart contracts contractual or evidentiary effect solely by virtue of their status as a smart contract or electronic record stored on a blockchain, though courts will still have to review on a case by case basis. Tennessee and Arizona, among other states, passed similar legislation regarding contractual enforceability of smart contracts. Vermont passed a similar law handling the evidentiary effect of digital records such as smart contracts. Wyoming has also been active in adopting regulations related to digital assets, smart contracts, and blockchains.